Gold hovers above crucial support

Gurumurthy K | Updated on August 05, 2018

Whether it manages to sustain above $1,200 or not will decide the next move

Gold continued to remain subdued, and extended its fall last week, as expected. The global spot gold prices fell to a low of $1,204 per ounce and bounced back slightly from there to close the week 0.8 per cent higher at $1,215 per ounce.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) closed 1 per cent lower at ₹29,486 per 10 g.

Strong dollar continues to retain the pressure on gold. The US dollar index fell to a low of 94.15 in the initial part of last week. However, it managed to sharply reverse higher from those levels to close the week on a strong note at 95.16, moving up 0.52 per cent for the week. The index can test the key 95.55-95.60 resistance zone in the coming days. This resistance zone has been capping the upside in the index since June. A pull-back from this resistance zone can take the index lower to 95 or even 94.5. However, the bias is positive on the charts. As such, an eventual break above 95.60 will trigger a fresh rally to 96.50. Such a rally in the index can keep the gold prices subdued going forward.

Trade tension escalates

The tariff war between the US and China seems to be escalating. The US President last week called for an increase in the proposed 10 per cent tariff on $200 billion worth of Chinese goods to 25 per cent. In retaliation, China announced it would levy an import tariff of 5-25 per cent on $60 billion worth of US goods. Gold has so far failed to gain safe-haven status from the ongoing trade war. But if tension intensifies and gold manages to gain safe-haven status, there is a possibility of seeing a recovery in gold prices.

Gold outlook

The global spot gold ($1,215 per ounce) has a crucial support at $1,200 which was tested last week. The bounce from the low of $1,204 last week gives a breather. But whether gold manages to sustain above $1,200 or not will decide the next move. If gold decisively breaks below $1,200, the downside pressure will increase. Such a break will increase the likelihood of the yellow metal tumbling to $1,150. On the other hand, if gold manages to sustain above $1,200, an up-move to $1,235 or $1,250 can be seen in the coming days. A range-bound move between $1,200 and $1,250 is possible in such a scenario. The level of $1,250 has to be breached for the yellow metal to gain bullish momentum.

On the domestic front, the near-term outlook for the MCX-Gold (₹29,486 per 10 g) futures contract remains negative. A fall to ₹29,000 is likely in the near term. However, the level of ₹29,000 is a strong support, and a further fall below it looks less probable. An upward reversal from ₹29,000 can take the contract higher to ₹30,000 or ₹30,200 thereafter. A strong break above ₹30,200 is needed for the outlook to turn positive. But if MCX-Gold breaks below ₹29,000, it can then target ₹28,500.

Silver consolidates

Silver prices have been consolidating over the past couple of weeks. The global spot silver prices have been range-bound between $15.2 and $15.65 per ounce for more than two weeks now.

This leaves the immediate outlook mixed. A breakout on either side of $15.2 or $15.65 will decide the next move.

If silver breaks below $15.20, it can fall to $15 — a crucial medium-term support. A break below it will increase the likelihood of silver tumbling to $14 thereafter. On the other hand, if silver breaks the range above $15.65, an up-move to $16.20 can be seen.

The MCX-Silver futures contract (₹38,072 per kg) has managed to recover after making a low of ₹37,736.

The price action on the chart suggests that the contract is lacking fresh sellers to decisively drag it below ₹38,000. If the contract breaks above the immediate resistance at ₹38,235, an up-move to ₹38,600 is possible.

But as long as the contract remains below ₹38,235, a fall to test the key support at ₹37,500 cannot be ruled out in the near term. A strong break below ₹37,500 will then increase the likelihood of the contract tumbling to ₹37,000 or even lower thereafter.

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Published on August 05, 2018
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